What is the interest on $790 at a rate of 8.8% for a duration of 10 months?
The interest on $790 at 8.8% for 10 months is $57.93 (option D). To find the interest on $790 at 8.8% for 10 months, we can use the formula:
Interest = Principal × Rate × Time
Where:
Principal is the initial amount of money, which is $790 in this case.
Rate is the interest rate, which is 8.8% expressed as a decimal, or 0.088.
Time is the length of time in years, which is 10 months divided by 12 to convert to years or 10/12.
Plugging these values into the formula, we get:
Interest = $790 × 0.088 × (10/12)
Calculating this, the interest is approximately $57.93.
Therefore, the correct answer is D) Interest = $57.93.
Understanding Interest Calculation
Interest is the amount of money charged by a lender to a borrower for the use of assets. It is typically calculated as a percentage of the principal amount and is added to the total amount repayable by the borrower. In this case, we are calculating the interest on a principal amount of $790 at a rate of 8.8% for a period of 10 months.
Principal: The principal amount is the initial sum of money borrowed or invested, in this case, $790.
Rate: The rate is the interest rate applied to the principal amount. It is given as 8.8%, which needs to be converted to a decimal for calculations, so 8.8% is equivalent to 0.088.
Time: The time is the duration for which the money is borrowed or invested. It is given as 10 months, which needs to be converted to years for calculation purposes. Since there are 12 months in a year, we divide 10 by 12 to get the time in years, which is approximately 0.8333 years.
By applying the formula for calculating simple interest, which is Interest = Principal × Rate × Time, we can determine that the interest on $790 at 8.8% for 10 months is indeed $57.93. This interest amount represents the cost of borrowing the principal amount for the specified duration at the given interest rate.
Understanding how interest is calculated can help individuals make informed financial decisions when taking out loans or investing money in various financial products. It is essential to consider the impact of interest rates on the total amount repayable and the overall cost of borrowing or investing. By mastering these concepts, individuals can effectively manage their finances and make sound financial choices.